What is Partnership? How does it differ from a joint stock company?
A partnership is an association of two or more than two persons who have combined together to share the profits of business carried on by all or any of them acting for all. Partners are basically persons who own the partnership business individually. It sometimes happens when one partner provides the major portion of the capital and the others contribute their skills i.e. technical and managerial ones with or without some capital. Partnership agreement is a document in which all the terms and conditions of partnership are mentioned. At least two persons should be there to form such a firm.
There should be maximum ten persons for banking business and twenty for other kinds of business. A partner is not allowed to transfer his share to someone else without getting the consent of all the other partners. Every partner has got the right to take part in the firm’s operations. All the partners are jointly and severally liable- for.the debts and obligations incurring in the business.
Partnership is different from a joint stock company in many ways. These ways are as follows:
Number of members: At least two persons should be there to form a partnership firm. There should be maximum ten persons for banking business and twenty for other types of business. Whereas in a joint stock company, if it is a public limited company, minimum number is seven and no maximum limit. In case of private limited company, minimum number is two and maximum number is fifty.
Transfer ability of shares: In a partnership firm, a partner is not allowed to transfer his share without the consent of other partners. Whereas, in a joint stock company, members of public limited company enjoy the right to sell of their shares to others without getting the consent off other shareholders. But for this, they are required to follow the procedure. Members of a private limited company cannot transfer their shares.
Liability: In respect of business debts, each partner in a partnership firm has unlimited liability. All the partners are jointly and severally liable for all (kinds of) business debts and obligations. Whereas in a joint stock company, members have liability limited by guarantee or by the shares. They are not liable for the debts of the company. Members have limited liability to the amount of shares held.
Public confidence: Since the accounts of the partnership firm are not published and publicized, the firm may not be able to gain confidence of the public. Whereas in a joint stock company, the accounts are audited by a C.A. and published thereafter. This helps in creating confidence in the public about the company’s functioning.
Secrecy: As no accounts are published in a partnership firm, some secrecy can be maintained. Whereas in case of a joint stock company, everything is discussed in meetings of Board of Directors. As a result, it is quite difficult to maintain business secrets.
Formation: In case of a partnership firm, when the partners agree to carry on a business together, they draw up and sign the partnership agreement. Under the Indian Partnership Act, it is not compulsory to register a partnership firm. After the agreement is signed, there are no complex government laws regulating the establishment of partnership. In case of a joint stock company, a company is an , incorporated association. Only after the registration under the Companies Act, it comes into existence.